New Primer: Anti-Money Laundering Regulations

Andrew Evans

Recent money laundering scandals have drawn attention to regulatory shortcomings in the global financial system, and Congress has signaled that it will seek reforms to U.S. anti-money laundering regulations. In a new primer, AAF’s Director of Financial Services Policy Thomas Wade explains the history and current structure of the United States’ anti-money laundering laws. The current regime combines high costs with limited effectiveness, making it ripe for reform, he notes.

An excerpt:

The cost of anti-money laundering compliance is high. Anecdotally, banks have noted that anti-money laundering compliance drives higher annual costs than compliance with the entirety of Dodd-Frank combined. The requirements incentivize firms to submit as many [suspicious activity repoorts] as they can both to appear to be in compliance with anti-money laundering requirements and to do their best to avoid an actual money laundering incident. Despite (and perhaps in part because of) this effort BPI found that a median of only 4 percent of SARs are pursued by law enforcement. In 2016 the Heritage Foundation found that the total cost to the economy of anti-money laundering compliance was between $4.8 and $8 billion annually. Despite this, the system resulted in fewer than 700 convictions annually, meaning each conviction cost approximately $7 million.